Libor-Tied Investor Suit Against Barclays Revived

MANHATTAN (CN) – After understating borrowing costs in connection with the Libor scandal, Barclays Bank may be liable to shareholders, the 2nd Circuit ruled. Barclays chief executive Bob Diamond apologized in announcing two years ago a $452 million settlement to resolve his bank’s attempted manipulation amid the ongoing financial crisis. The London Interbank Offered Rate (Libor) and the European Interbank Offered (Euribor) are based on the interest rates leading banks charge when loaning money to other banks overnight. Although the rates should represent the cost of a bank’s lending activities, Barclays admitted that it submitted artificially low rates to the British Banker’s Association, which publishes Libor, to hide rising loan costs and to benefit derivatives positions its traders took based on the benchmark rates. The bank’s American depository shares dropped 12 percent the next day. Pensions and retirement funds claimed in ensuing class actions that Diamond lied to them in 2008 conference call with market analysts by promising that Barclays was “categorically not paying higher rates in any currency.” Roughly a year ago, U.S. District Judge Shira Scheindlin said that the plaintiffs failed to plead loss causation and dismissed all of the claims. A three-judge panel found Friday that she reached that conclusion too soon. “While expressing no view on the ultimate merits of plaintiffs’ theory of loss causation, we hold that the court below reached these conclusions prematurely,” Judge Richard Berman wrote for the panel in the 22-page opinion. “The assumption that Barclays’s false 2007-2009 submission rates were somehow corrected after January 2009 (but before June 27, 2012) is inconsistent with the complaint’s allegations and defendants’ concession at oral argument that the misrepresentations were not brought to light until the disclosure of the settlement agreements.” (Parentheses in original.) The appellate court upheld Scheindlin’s findings that Barclays’ statements about the bank’s internal controls were not materially false.